25April2010
The Secrets of Financial Monitoring For Big Businesses and Freelancing Success
Cash flow problems are the fundamental reason why companies that fail close down.
For anyone who is seriously interested in making your venture profitable, it follows that managing your money efficiently is crucial to the security of your organisation.Regardless of whether a person only operate a marginal floor sanding & sealing company, or coordinate your multi million pound company, closely monitored finances plus a positive cash flow, will be important ingredients in small business success.
When starting a new enterprise it might seem difficult to put together a budget without any financial history on which to base income and expenses. However a business plan, before you even start, with some idea of expenses and revenues is essential to assessing the potential of a company, even if you are just planning to setup a home based freelancing business. It might seem like guesswork at the beginning, but a tentative budget can be established with some thought and projections of future business. From some past experience in renovating buildings, I always say ‘think of a figure and double it’ and then you will be near the mark. I think this is true for other companies, because it’s human nature to underestimate what we need to spend and over estimate what we will earn.
Our electricity prices comparison business, as with any business, has two distinct categories of business finance, income and expenses.
Under the expense category there can be many sub-categories usually falling into 2 seperate areas of controllable expenses and uncontrollable expenses. While many business directors and freelancers believe they can control every cost involved in their company, this is not always the case. Some things such as services costs, the amount of rent and other supposed fixed costs can, and do change, with the owner having no control. For example the recent increase in electricity prices are an example of this and have been the reason a number of small airline and transportation businesses going out of business as their fuel costs skyrocketed.
Other expenses such as payroll, transportation and building repairs can be subject to a budget, but they are considered controllable expenses. If the revenue begins to fall off, you can control some of these expenses by laying-off staff and cutting back on marketing. However, living by a budget may help maintain profitability but could also turn against you in the long run.
Depending on the viability of your company it may be a better investment to bite the financial bullet on employee wages and still provide excellent customer service to the remaining customers until business picks up again, or consider outsourcing and freelancing for when you need a bit of extra help but without having to hire new staff. If no one supports of the customers, it will not be long until there are no more customers to care for.
There are two ways to budget your business finance and these are through set amounts or as a percentage of sales. Many companies will budget their controllable costs by the pound and non-controllable by percentage of income. Obviously a good part of the owner’s time is going to be based on bringing sales into the company and how much they have to spend on controllable expenses will be in direct relation to sales. With any upturn in business the owner will probably need the extra help to take care of the business so a percentage of income will go to more wages, thus freeing the owner to focus on generating additional sales.
There are many other expenses that fall into the payroll account such as worker’s compensation charges, National Insurance tax paid by the employer and paid holidays time or other perks determined by the organisation. These need to be built into costs when recruiting new employees into the organisation, unless you make extensive use of outsourcing organisations.
While you may think a budget is impossible to establish for a new organisation, it is vital to establish a healthy and sound financial foundation on which success can be built for the future.
About the Author: Roger Davies, is the Managing Director for Advanta Productions and is responsible for a web developer unit based in the Midlands serving businesses in the Nottingham, Derby and Loughborough areas. Advanta have worked on hundreds of web development projects. If your website needs development or if you want to sell on-line contact Roger on 0845 22 55 805 or via the website.